Export efforts of manufactured goods

T he manufacturing
sector has acquired
global
competitiveness
through the
assimilation of
global best
practices in
manufacturing in
India. This sector is poised to contribute 25 per cent of India’s GDP with a
manufacturing growth of 12 per cent to be achieved in 5 to 6 years by 2012.

India ranks 29th in the world in 2006, among 61 economies ranked on the basis of
economic performance, government and business efficiency and infrastructure. Also
more than 100 of the FORTUNE 500 companies have set up R&D centres in India.
Manufacturing in India currently accounts for 45 million jobs and 53 per cent of the
country’s exports. India has been able to achieve its current competitiveness in the
skill intensive sectors of its economy. In 1991, India had 56,000 knowledge workers,
which have increased to 1.3 million in 2005 and are likely to increase to 2 million in
2008.

Recent trends in Exports

India’s merchandise exports have grown close to 20 per cent in the past forty years,
experienced in four phases, viz. 1972-77, 1987-90, and 2000-04. In 2004-05, exports
registered a growth of 24.13 per cent. In 2005-06, the growth rate came down to
22.97 per cent but it crossed the US$100-billion mark, amounting to US$ 102 billion
(see Table 1). This 22.97 per cent in export growth in dollar terms owed itself largely

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to the robust performance by five traditional products, viz. agricultural and allied
products, gems and jewellery, chemicals and related products and engineering
goods, textiles and unconventional item like petroleum products - which together
constitute more than 67 per cent of the aggregate exports of the country (see Table
2).

India’s exports' share in world merchandise exports which was 0.6 per cent in 2000
had increased to 0.9 per cent in 2005. Also the new Foreign Trade Policy 2004-09
essentially provides a road map for the development of India’s foreign trade sector
with the twin objectives to double country’s percentage share of world merchandise
exports by 2009; and to act as an effective instrument of economic growth by giving a
thrust to employment generation. India’s world ranking as a merchandise exporter
has gone up one slot in 2005 to 29 from 30 in 2004 in the world’s 30 leading
exporters of World Trade Organisation.

Manufactured Exports

Over the years, India’s manufactured exports increased to US$83 billion in 2005-06
from US$40 billion in 2002-03. Its percentage increased from 76.35 in 2002-03 to
81.11 in 2005-06. Also the global trend to manufacture and source products in low-
cost countries is likely to gather strength over the next ten years. The skill-intensive
industries are where India has a significant competitive advantage. If India were to
take advantage of this trend, manufactured exports from India could increase from
US$40 billion in 2002-03 to approximately US$300 billion by 2015, leading to a share
of approximately 3.5 per cent in world manufacturing trade.

India has several advantages in skill-intensive industries such as auto components

and pharmaceuticals, where the next set of off-shoring opportunities will arise. Apart
from low wage rates, these advantages include engineering skills (process, product,
and capital engineering), established raw material bases, a mature supply base, and
growing domestic demand.

In-depth assessment shows that out of this approximately US$300 billion of total
manufacturing exports, US$70-90 billion could be captured from just four sectors,
namely apparel, auto components, specialty chemicals, and electrical and electronic
products. India’s exports in these sectors were US$10 billion. In apparel, global
trade could grow from US$200 billion in 2002-03 to over US$300 billion by 2015. Of

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this, India can grow its exports from US$6 billion in 2002-03 to US$25-30 billion by
2015.

In auto components, India should aspire to capture US$20-25 billion by 2015, as

compared to exports of just over US$1 billion 2003-04-implying a required growth
rate of almost 30 per cent a year. Likewise, electrical and electronic products world
trade already exceeds US$1 trillion. India should aspire to capture US$15-18 billion,
as compared to exports of US$1.2 billion in 2002-03. In specialty chemicals, India
has a potential of US$12-15 billion in exports.

TABLE 1
INDIA’S FOREIGN TRADE
(US$ million)
Year Exports %age Imports %age Trade
change change balance

2000-01 44560 21.0 50536 1.7 -5976

2001-02 43827 -1.6 51413 1.7 -7586
2002-03 52719 20.3 61412 19.4 -8693
2003-04 63843 21.1 78149 27.3 -14306
2004-05 83535 24.1 115517 47.8 -31982
2005-06 102725 22.9 142416 23.3 -39691

Source: DGCI&S, Kolkata and Dept. of Commerce, Ministry of Commerce &

Industry.

TABLE 2
INDIA’S SECTORWISE EXPORTS
(US$ million)
Sector 2002-03 2003-04 2004-05 2005-06 %age
change
Agriculture & Allied 6700 7328 6293 7408 17.72
Products (12.71) (11.48) (7.53) (7.21)
Plantations 547 593 647 725 12.05
(1.04) (0.93) (0.77) (0.70)

Marine Products 1431 1329 1440 1436 -0.28

(2.71) (2.08) (1.72) (1.40)

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 Ores and Minerals 1996 2369 5079 6189 21.87
(3.79) (3.71) (6.08) (6.02)
Manufactured Goods 40252 52059 67718 83326 23.05
(76.35) (81.54) (81.06) (81.11)

Crude and Petroleum 2576 3568 6989 11515 64.76

Product (4.89) (5.59) (8.37) (11.21)
Others and Unclassified 1195 2575 2263 3011 33.05
Items (2.27) (4.03) (2.71) (2.93)
Total 52719 63843 83535 102725 22.97

Note: Figure in bracket shows percentage to India’s total exports.

Source: DGCI&S, Kolkata and Department of Commerce, MOC&I.

TABLE 3

INDIA’S EXPORTS OF MANUFACTURED GOODS

(US$ million)

Goods 2002-03 2003-04 2004-05 2005-06 %age

change
Gems & jewellery 9030 10573 13762 15547 12.97
(17.13) (16.56) (16.47) (15.13)
Textiles 11081 12205 12918 15206 17.71
(21.02) (19.12) (15.46) (14.80)
Chemicals & 7858 9960 13164 15514 17.85
related products (14.58) (15.60) (15.76) (15.10)

Engineering goods 7689 10516 15383 19169 24.61

(14.58) (16.47) (18.48) (18.66)

Petroleum products 2576 3568 6989 11515 64.76

(4.89) (5.59) (8.37) (11.21)
Leather and 1848 2163 2422 2626 8.42
manufactures (3.50) (3.39) (2.90) (2.56)
Electronic goods 1294 1805 1890 2244 18.73
(2.45) (2.83) (2.26) (2.18)

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 Handicrafts 785 500 377 410 8.75
(1.49) (0.78) (0.45) (0.40)
Carpets 522 586 636 829 30.35
(0.99) (0.92) (0.76) (0.81)
Sports goods 73 99 102 132 29.41
(0.14) (0.15) (0.12) (0.13)
Project goods 49 84 75 134 78.67
(0.09) (0.13) (0.09) (0.13)
TOTAL (incl. 52719 63843 83535 102725 22.97
others)

Note: Figure in bracket shows percentage to India’s total exports.

Source: DGCI&S, Kolkata and Dept of Commerce, Ministry of Commerce and

Industry.

TABLE 4
TOP FIFTEEN MANUFACTURED ITEMS OF EXPORTS
(US$ million)
Item 2002-03 2003-04 2004-05 2005-06 %age
change
Gems & jewellery 9030 10573 13762 15547 12.97
(17.13) (16.56) (17.29) (15.13)
Basic chemicals, 4658 5846 7139 8937 25.18
pharma, cosmetics (8.83) (9.16) (8.41) (8.70)
Readymade garments 5690 6231 6561 8404 28.09
(10.79) (9.76) 7.57 (8.18)
Machinery & 2008 2776 3719 4796 28.96
instruments (3.81) (4.35) (4.39) (4.67)
Manufactures of metals 1840 2426 3401 4173 22.70
(3.50) (3.80) (4.12) (4.06)
Cotton yarn, fabrics, 3351 3395 3450 3863 11.97
made-ups etc. (6.36) 5.32) (4.02) (3.76)
Primary & semi- 1621 2154 3520 3006 -14.60
finished iron & steel (3.07) (3.37) (4.08) (2.93)
Plastic and linoleum 1222 1753 3033 2700 -10.98
(2.32) (2.74) (3.70) (2.63)

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 Transport equipments 1334 1956 2830 4567 61.38
(2.53) (3.06) (3.55) (4.44)
Rubber, glass & other 1601 2002 2480 3103 25.12
products (3.04) (3.13) (3.18) (3.02)
Manmade textiles 1417 1821 2051 2000 -2.49
made-ups etc. (2.69) (2.85) (2.44) (1.95)
Electronics 1253 1728 1832 2169 18.39
(2.38) (2.71) (2.20) (2.11)
Leather & 1206 1396 1523 1584 4.00
manufactures (2.29) (2.19) (1.84) (1.54)
Footwear 642 767 899 1042 15.91
(1.22) (1.20) (1.04) (1.01)
Non-ferrous metals 288 454 765 1361 77.91
(0.55) (0.71) (0.95) (1.32)
TOTAL (of above 40252 48697 56965 67252 18.05
items)
India’s Total Exports 52719 63843 83535 102725 22.97

Note: Figure in bracket shows percentage to India’s total exports.

Source: DGCI&S, Kolkata. and op.cit. Table 2.

Export Promotion

Export promotion is a
vital ingredient of trade policy of
India. It is imperative that
India gears itself for a quantum jump in
technology- intensive products
and services. Over the years its
export promotion strategy has focused
on both products and markets. India’s future export promotion
will depend upon its ability to produce quality products using cutting edge
technologies, the export orientation of products as well as targeted markets. A total
of 220 items and 25 markets have been identified for special attention based on
different criteria. The following are the main sectors covered in the Medium-Term
Export Strategy:

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 1. Engineering (including Instruments and items of repairs)
2. Textiles
3. Gems and Jewellery
4. Chemicals and Allied Products
5. Agriculture and Allied Products (Marine and Plantation)
6. Leather and Footwear Items

The three Es---Electronic, Electrical and Engineering goods figure

prominently in the list of the identified items where there is a great potential for India.
The strategies for this sector include support for SMEs to modernise, accreditation of
testing laboratories in India by overseas agencies, R&D, other measures to
effectively counter non-tariff barriers in the form of TBT (WTO Agreement on
Technical Barriers to Trade) conditions, further joint ventures, brand promotion,
support to industry to fight anti-dumping cases, providing warehousing facilities in
overseas markets, exploring possibilities of promoting exports of Indian made
economy vehicles in developing countries and middle and low income groups in
developed countries, promoting export of automobiles with the help of FDI, M&As
with respect to recognition of testing agencies and infrastructural and logistic support
for automobiles exports.

Export Competitiveness

Export competitiveness underscores the vital importance of expanding the

supply base and diversifying India’s exports to enable the country to play a legitimate
role as a resilient and buoyant economy. Global competitiveness covers all the
aspects of marketing apart from the cost and quality competitiveness. It is sure that
competitiveness of Indian manufacturing and service sectors entails all-out efforts by
every player---whether policy-makers or business entities.

Increase in the share of India’s exports to a respectable level necessitates up

gradation of technology, heightened sensitivity to client needs, total commitment to
client needs, total commitment to quality and dynamic business acumen. In the wake
of liberalisation competitiveness becomes a critical issue and the new economic
environment provides exciting opportunities to both domestic and foreign investors to
tap the growing Indian market and to use India as a major production centre for
global market. International competitiveness is no longer a matter of choice, but an
imperative step for Indian industries.

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 Adequacyof infrastructure, resource generation, efficiency in resource
application, systemic efficiency are prerequisites for encouraging, achieving and
sustaining international competitiveness. Thus to increase exports, diversify the
export basket and destinations, there should be mind set for reorientation, quality up
gradation by domestic enterprises so that they acquire and retain competitive
strength through ceaseless efforts to improve the product quality, design, packaging,
delivery, reduce the cost and ensure best value for money.

Technology exports’ capabilities are increasingly becoming important factors

in enhancing the global competitiveness of a nation and also considered as an
effective tool in the knowledge driven economy. Growing emphasis on global
competitiveness, the importance of capability for technology exports as a factor
determining the growth prospects of nations has increased considerably. While
product exports have inherent limitation, technology exports have a tremendous
potential. Innovative and R&D activities are the source of technology generation and
technological competitiveness.

Trade activities provide an important impetus to strengthening a country’s

scientific and technological base and promoting innovations, which are among the
key determinants of increasing local content, enhancing domestic value-added
activities and improving returns on factors of production. Trade can unleash the
entrepreneurial spirit and capacity. By increasing productive employment, trade can
create new opportunities for the poor and expand the prospects for more beneficial
participation by women in economic activities and also ensure access for the poor to
food, essential medicines and basic social services. This calls for a mission driven
approach.

# Madan Lal
Indian Institute of Foreign Trade (IIFT),
B-21, Qutab Institutional Area,
New Delhi - 110016.